The Shale Daily Update 5.11.2020

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The Big Story

Continental Resources, a major producer in both Oklahoma and North Dakota, announced significant production cuts early Monday. Reuters is reporting that Continental said it would curtail as much as 70% of its production during May, and is also planning to cut back on its drilling program for the rest of 2020.

Continental’s announcement comes on the heels of its Q1 earnings notice, in which the company said it lost $186 million for the first three months of 2020, amid crashing global demand due to the COVID-19 pandemic. “Our first quarter results underscore the capital efficient and low cost nature of our assets,” CEO Bill Barry said in a statement. “Continental is financially strong with ample liquidity and no imminent debt maturities.”

Fox Business reports that “As demand dropped, Continental’s production increased by 9 percent from a year ago to 360,841 barrels of oil equivalent per day. Oil production was up 3 percent to an average of 200,671 barrels per day while natural gas output increased 16 percent to 961 million cubic feet per day.”

Continental’s story is fairly typical of what we are seeing from large independent producers across the U.S. during this ongoing industry crisis.

Now, on to other stories:

Bloomberg’s reporting that Saudi Arabia will take on an addition 1 million barrels of oil per day in production cuts, over and above what it had committed to under the new OPEC+ deal. Excerpt:

Saudi Arabia announced an extra voluntary oil-production cut of 1 million barrels a day, bringing output to its lowest in 18 years as the kingdom tries to prop up a nascent recovery in energy markets.

Oil prices, which were down on the day, immediately turned around, with West Texas Intermediate futures jumping as much as 3.4%.

Riyadh aims to pump just under 7.5 million barrels a day in June, compared with an official target under the most recent OPEC+ agreement of just under 8.5 million a day. If Saudi Arabia makes good on its pledge, its production will drop to the lowest since mid-2002, according to data compiled by Bloomberg.

Axios has an interesting piece this morning, analyzing how the oil industry’s collapse will impact the overall U.S. economy. Worth a read.

The headline of this piece in the Wall Street Journal cracked me up: “While Big Oil Pulls Back, Mexico’s President Bets on Pemex.” Betting on Pemex has never been a very good bet in the past.

C’mon down to Texas, Elon – the water’s fine! Excerpt:

Tesla filed a lawsuit against Alameda County on Saturday for allegedly violating due process by barring the company from making its electric vehicles during the coronavirus outbreak.

“Alameda County’s power grab not only defies the governor’s orders, but offends the federal and California constitution,” the suit claims.

The move comes after CEO Elon Musk lashed out at public health officials Saturday on Twitter, claiming his car company will leave California and threatening to sue the county over coronavirus lockdown orders that have shuttered its Fremont factory.

“Tesla is filing a lawsuit against Alameda County immediately. The unelected & ignorant ‘Interim Health Officer’ of Alameda is acting contrary to the Governor, the President, our Constitutional freedoms & just plain common sense!” Musk tweeted Saturday morning, referring to Health Officer Dr. Erica Pan.

He continued in another tweet, “Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be dependen (sic) on how Tesla is treated in the future. Tesla is the last carmaker left in CA.”

Hilarious.

E&E has a report indicating that a federal judge could narrow the scope of a recent rash decision by the U.S. Army Corps of Engineers to stop permitting interstate pipelines.

Oil demand is coming back. That’s the conclusion by the analyst firm Boston Consulting Group Center for Energy Impact. Excerpt:

Jamie Webster, Senior Director, Boston Consulting Group Center for Energy Impact: Demand is clearly coming back, with multiple indicators showing positive signals as economies begin to open up. Boston Consulting Group’s Shutdown oil demand index, a measure of shutdown policies on oil demand, has dropped to 538, indicating demand is down just less than 20 million barrels per day (bpd), from the high point on the index of 789 in mid-April. But the recovery will likely be slow. It took nearly three years for global oil demand to recover from the Great Recession. U.S. oil demand did not recover until 2015, when low prices, combined with a strong economy, boosted oil demand. The lagging indicator will be jet fuel as business travelers are slow to return to the air and lower economic activity and COVID-19 concerns will cause vacation travelers to prefer driving vacations over those that require air travel.

Good piece in the Albuquerque Journal projecting that the U.S. industry will continue cutting oil production well into the 3rd and 4th quarters this year.

That’s all for today.